TSLA - UP or DOWN?If there's one stock I had to name for being the most unpredictable, it's TESLA ( NASDAQ:TSLA ). This rather volatile stock is expected to have some pretty big moves going into market close today as the company will be holding their annual shareholder meeting at 4:30 p.m. ET.
...But wait...there's more!
Once the meeting is over, the company will immediately follow up with their highly anticipated Battery Day event, which will be used to show those in attendance what's new with TSLA batteries and what improvements could be coming to make their batteries more energy efficient.
So what does this mean for the stock?
Well, for one, TSLA is a volatile stock, so major events like these... only increase implied volatility since everyone is expecting a big move either up or down. Second, The stock is trading dead smack in the middle between its recent highs and lows... the lows being most recent of the two.
So, taking advantage of volatility is the way to go. Options traders can benefit from inflated options prices due to higher implied volatility by being option sellers. Strategies like Short Iron Condors, feature both, a capped risk and reward profile. Setting your strike selections near the recent highs and lows could be one way to trade TSLA... but the problem is that the inner strike are so wide making the risk to reward ratio very high. You can also sell credit spreads.
To trade directionally, means to either go long calls or puts... Since Volatility is high, these strategies tend to be more expensive near major announcements. If you nail it, good for you. If you dont, then know that you can't lose more than what you paid for. If you still want to trade directionally, but want to minimize the risk, you can do debit spreads. This involves buying an option which will serve as your directional trade, and then selling that same type of option a few strikes further away to bring in some credit. This option might be good if you think that implied volatility will only increase after the announcement.
Usually, the day following a major events, as with earnings announcements, options have been known to experience "volatility crush," in which the implied volatility drops after the news announcement. A drop in implied volatility can affect an option's price even more so than the movement of the underlying stock price. Therefore, directional neutral trades such a long straddles, will need to have a large move in the underlying in either direction to outpace the potential drops in implied volatility the next day.
Which strategy will you choose? Remember...choosing not to trade can also be a wise trading strategy.
